Stock selection in outperformance for BlackRock smaller companies

During the half year ended 31st August 2013, the BlackRock Smaller Companies Trust (BSCT)’s net asset value (“NAV”) increased by 11.8% and the share price rose by 17.8%, BlackRock said.

By comparison, the company’s benchmark, the Numis Smaller Companies plus AIM (excluding Investment Companies) Index rose by 6.7%. The company has also delivered equally strong performance over the long term, substantially beating its benchmark, BlackRock also reported.

As the report also highlighted, outperformance was mainly driven by stock selection, assisted by gearing and, to a lesser extent, by positive sector allocation.

The strongest individual stock performance in the period came from Xaar, whose share price rose by 142%. Xaar announced very strong trading updates and results, reflecting huge success with the sales of its Platform 3 inkjet heads. These mainly enable the decoration of ceramic tiles and Xaar has taken significant market share. The company remains well positioned and is looking at other markets for its print heads.

Mike Prentis, investment manager of BlackRock Smaller Companies Trust, commented: “Looking at sector allocation, the most significant positive impact came from the house builders, where we have held an overweight position for some time. Newsflow remains good; we still like the sector and are happy to remain overweight. In the more internationally exposed sectors we benefited by being underweight in the technology hardware sectors, however our overweight position in electronics companies was unhelpful.”

Nicholas Fry, chairman of BlackRock Smaller Companies Trust, commented on the outlook for the UK smaller companies sector: “Markets will continue to be preoccupied with the progress in the US and in the UK towards the normalisation of interest rates, which could lead to periods of uncertainty and volatility, although provided rates rise in response to improved economic performance, this should in general be good for equities.

“Against an improving economic background in the UK and much of the developed world, we believe that the majority of companies in which we invest will continue to expand, as they have good managements, robust balance sheets and in many cases significant exposure to growing economies overseas.

“Within the UK the portfolio is invested in companies with exposure to the strengthening UK housing market, improving UK consumer confidence and the strength of the London economy, as well as leading edge technologies. Confidence in the smaller companies sector has improved significantly. We expect attractive returns for shareholders over the medium term.”

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